Question
In: Accounting
Solomon Construction Company expects to build three new homes during a specific accounting period. The estimated...
Solomon Construction Company expects to build three new homes during a specific accounting period. The estimated direct materials and labor costs are as follows:
| Expected Costs | Home 1 | Home 2 | Home 3 | ||||||
| Direct labor | $ | 65,000 | $ | 99,000 | $ | 189,000 | |||
| Direct materials | 98,000 | 136,000 | 188,000 | ||||||
Assume Solomon needs to allocate two major overhead costs ($70,600 of employee fringe benefits and $29,540 of indirect materials costs) among the three jobs.
Required
Choose an appropriate cost driver for each of the overhead costs and determine the total cost of each house. (Round "Allocation rate" to 2 decimal places.)
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Solutions
Expert Solution
appropriate cost drivers-
a. fringe benefits = on the basis of direct labor
b. indirect material = on the basis of direct material
fringe benefits-
| house | allocation rate | * | weight of base | = | allocated cost |
| 1 | 65000/353000*100=18.41% | * | 70600 | = | 12997.46 |
| 2 | 99000/353000*100=28.05% | * | 70600 | = | 19803.30 |
| 3 | 189000/353000*100=53.54% | * | 70600 | = | 37799.24 |
| total | * | = | 70600 |
indirect material-
| house | allocation rate | * | weight of base | = | allocated cost |
| 1 | 98000/422000*100=23.22% | * | 29540 | = | 6859.188 |
| 2 | 136000/422000*100=32.23% | * | 29540 | = | 9520.742 |
| 3 | 188000/422000*100=44.55% | * | 29540 | = | 13160.070 |
| total | * | = | 29540 |
the cost component to determine the total cost of each house-
| expected cost | house 1 | house 2 | house 3 | total |
| direct material | 98000 | 136000 | 188000 | 422000 |
| direct labor | 65000 | 99000 | 189000 | 353000 |
| fringe benefits | 12997.46 | 19803.30 | 37799.24 | 70600 |
| indirect material | 6859.188 | 9520.742 | 13160.070 | 29540 |
| total | 182856.648 | 264324.042 | 427959.31 | 875140 |
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